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MEP gives City hope on EU hedge fund directive

Date: Wednesday, November 11, 2009
Author: Times Online

The woman who chairs one of the most powerful political committees in the European Parliament will propose next week that caps on hedge fund borrowings should be dumped, The Times has learnt.

Sharon Bowles, whose Economic and Monetary Affairs Committee is responsible for handling the proposed legislation governing hedge funds, private equity and other asset managers, plans to suggest in a speech in Frankfurt that central banks should monitor borrowing levels in their own countries, within a range set by Brussels.

The Liberal Democrat MEP hopes that her suggestion will trigger a debate among regulators, central banks and fund managers about the feasibility of such a move. It would mark a significant victory for London’s hedge funds, which are anxious that Brussels will cap their leveraging levels and force them to apply to Europe when they want to increase borrowing.

Ms Bowles said: “We could give the responsibility of leverage to central banks, but maybe we [Brussels] could set a range or corridor where leverage could lie, then leave it to the central banks to decide where a specific hedge fund should be within that range.”

Her remarks came after the first public hearing in Brussels for the proposed European Union directive intended to regulate hedge funds and private equity and prevent a repeat of the credit crisis. In a move that will provide fresh hope to the City, Ms Bowles said that there was barely a line of the proposed EU directive that did not need to be amended.

Under the proposed legislation, Brussels wants to impose onerous new rules on hedge funds and private equity firms that would force them to hoard more capital, cap their borrowing levels, disclose more data about their trading practices and clients and effectively block EU and non-EU hedge funds from taking stakes in each other.

Under the guidance of both Lord Myners, the City Minister, and Lord Mandelson, the Business Secretary, the City has been lobbying to water down the proposed legislation.

President Sarkozy of France and Angela Merkel, the German Chancellor, want stricter regulation for hedge funds as they blame them for worsening the severity of the credit crisis.

More than three quarters of Europe’s hedge funds are based in London, contributing about £3.5 billion a year in tax revenues to the Treasury.

Arlene McCarthy, the Labour MEP and deputy chairman of the Economic and Monetary Affairs Committee, told The Times that she believed there would be significant revisions of leverage and capital requirement rules, but that Britain would have to fight very hard to scrap foreign ownership restrictions.